Nasdaq 100 Erases Weekly Loss After Softer April Jobs Report

Also 10-year T-Note, Gold, Crude Oil, and Euro Futures 

1. Nasdaq 100 e-mini futures (/NQ): +1.62% 

2. 10-year T-note futures (/ZN): +0.50% 

3. Gold futures (/GC): -0.76% 

4. Crude oil futures (/CL): -0.57% 

5. Euro futures (/6E): +0.39% 

The U.S. labor market is showing signs of moderating, breathing new life into Fed rate cut odds just days after the May Federal Open Market Committee (FOMC) meeting. 

The nonfarm payrolls report showed a headline gain of 175,000 versus the consensus forecast of 243,000, and the two-month revision saw prior payrolls trim 22,000 jobs. The household employment survey indicated that the unemployment rate (U3) rose to 3.9% against a forecast of holding at 3.8%, because workers reported only 25,000 more jobs than in March. The labor force participation rate held steady at 62.7%. 
 
Most important in the wake of the first-quarter U.S. employment cost index that spooked markets earlier this week, the wage figures showed signs of unexpected moderation. Average hourly earnings increased by 0.2% month over month and 3.9% year over year. That was below forecasts that predicted increases of 0.3% month over month and 4% year over year. 

Overall, the April U.S. jobs report produced an initial rally in both stocks and bonds as the combination of slower payrolls growth and softer wage pressure boosted odds of Fed rate cuts later this year: two cuts are now discounted, with the first expected to arrive in September.  

Equities rise

Equity markets sprang back to life after this morning’s jobs data out of the United States revived Fed rate cuts bets. Yesterday’s Apple (AAPL) earnings are also helping to fuel some risk sentiment into the weekend, pushing S&P 500 futures (/ESM4) over 1% higher ahead of the opening bell.

This morning’s report shows how sensitive traders have become to rate cut bets, which have pushed back from an initial six or seven expected cuts at the start of the year to a single cut. Earnings season is nearly over, and it's been a relatively positive one, but we still have several big hitters stepping up to bat next week, with Disney (DIS), Uber (UBER) and Shopify (SHOP). 

Treasury yields move lower

Treasury yields moved lower across the curve on the jobs report. The acute recalibration in Fed rate cut bets has bond traders reconsidering when the central bank will cut rates.

There isn’t much data left ahead of the weekend, including auctions, which should leave the prevailing narrative intact. Next week brings several high-impact bond auctions along with more earnings from U.S. companies. The inverted yield curve between the 10-year and 2-year steepened to its weakest inversion since January on this morning’s data, as traders bid up short-term policy-sensitive bonds. The 10-year T-note futures (/ZNM4) was up 0.52% ahead of the New York open.  

Gold muted

Gold prices (/GCM4) are muted despite a softer dollar and lower Treasury yields, which would normally be a tailwind for the precious metal. Investors are putting their bets into equity markets today as Fed rate-cut bets move forward. Gold prices are now on track to record a second weekly round of losses, although technically, the metal remains in an uptrend. 

Crude oil drops

Crude oil prices (/CLM4) are set to drop the most this week since January, down nearly 6% as of Friday morning. Geopolitical risk has failed to keep the commodity propped up, something bulls have counted on since the Israel-Hamas conflict began.

The slowdown in U.S. jobs growth reinforces recent fears that demand for fuels will continue to slow in the coming months. Baker Hughes will release rig count data today, and then the focus will turn back to weekly inventory figures next week.

Euro futures gain

Euro futures (/6EM4) are trading at the highest levels since early April as the fall in Treasury yields helps to propel the European currency.

Analysts expect the European Central Bank (ECB) to cut interest rates ahead of the Federal Reserve, which has put a bearish tilt on the European currency through March and the start of April. Euro Zone inflation data earlier this week helped to bolster the view that the ECB will cut soon.

The divergence between policies could pull the Euro back down if the Fed undergoes another tinkering with its rate cut bets, but for now the pullback in Treasury yields induced by the jobs report should clear some more upside for the euro. 

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater

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